MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Corporate inversions have become increasingly common as a way for U.S. companies to lower the taxes they have to pay. In an inversion, a company shifts its legal headquarters overseas. The Treasury Department, this week, announced new rules designed to discourage the practice, which many see as unfairly depriving the U.S. of tax revenues.

MS. DIANE REHMHere in the studio to talk about the pros and cons of tax inversions and what the new rules mean, Chris Edwards of the Cato Institute and Richard Rubin of The Wall Street Journal. Joining us by phone from California, Edward Kleinbard of the University of California Gould School of Law. I invite you to be part of the program. Give us a call at 800-433-8850. Send an email to drshow@wamu.org. Follow us in Facebook or send us a tweet. And thank you all for being with us. Good to have you.

MR. RICHARD RUBINThank you, Diane.

MR. CHRIS EDWARDSThanks.

REHMGood.

MR. EDWARD KLEINBARDThank you.

REHMRich Rubin, explain the treasury department's latest actions to put the brakes on these inversions.

RUBINSure. This is the third time the treasury department has gone after these inversions with rules. Each time, they've said, gosh, it'd be really better if Congress could come along and do something, either narrowly on inversions or a broader kind of tax reform. But in the meantime, the treasury's going to act. This set of rules had two big components. One went after what treasury calls serial inverters, companies -- the biggest one in the news this week is a company called Allergan -- companies that have grown over the past few years by engaging in multiple transactions.

RUBINAnd what they basically said is, look, if you've got one of these companies, we're gonna disregard some of those transactions when calculating a really important ratio. And the effect of that was -- in Allergan, in its case, they're trying to merge with Pfizer and it basically meant that that inversion wouldn't have worked, that Pfizer even trying to escape the U.S. tax net would likely have still be considered a U.S. company.

RUBINThe second thing the treasury did this week was go after a practice known as earning stripping. And that's a move that companies make after they invert, typically. And what they do, they really take advantage of the gap between the U.S. tax rate and the tax rate where they are abroad. And so what companies can do is say, all right, we're gonna lend money from the parent company out in Ireland, let's say, and we're gonna lend it to our new U.S. subsidiary, which is now underneath that Irish company.

RUBINAnd those interest payments that the new U.S. subsidiary makes are, like all interest payments, deductible and so you load up that U.S. subsidiary with deductions, which means the taxable income against that U.S. 35 percent rate is lower and that income essentially just gets pushed into some place where, like in Ireland, the tax rate is 12.5%. And the treasury basically said, no, no, you can't do that and we're gonna look at debt transactions like that and say they're not really debt and you don't really -- you're not able to get those kinds of deductions.

REHMTell me how important those new treasury rules are, as far as what the Congress could or should have done?

RUBINSo there's two things that Congress really would have to weigh in on. I talked -- for about the ratio. So when you have an inversion like this, if the new combined company's shareholders, if 80 percent of their shareholders come from the former U.S. company and that sort of U.S. company is so much bigger in comparison to the foreign company it's merging with, then the inversion is sort of disrespected and disregarded and they're still considered a U.S. company.

RUBINIf that ration is between 60 and 80, then a whole narrower set of penalties apply. Those thresholds, that 60, that 80, those are in the tax code and only Congress can change that. And the treasury can change how it's calculated, but they can't change those numbers. And so what the administration wants to do is lower that 80 percent number down to 50. And then, the second thing that Congress can do that the administration can't is really reform the tax code, lower the tax rate, get rid of tax breaks, change the way U.S. companies are taxed on their international income and that's a whole complex set of things that we can talk about further within the hour.

REHMSure. I want to ask just one question about Allergan. I know they make Botox. Weren't they originally located in California?

RUBINSo Allergan, as we know it now, is the amalgamation of several companies that had been headquartered in the U.S. Actavis, Forest Laboratories, Allergan, which was from California, and now they -- this is a company that has been an aggressive merger partner and is headquartered in Dublin for tax purposes, but a lot of their senior executives and the management of the company...

REHMStill live here.

RUBINIs in New Jersey, yeah.

REHMIn New Jersey. Interesting. Ed Kleinbard, your thoughts on corporate inversions.

KLEINBARDDiane, thanks. You know, Richard did a super job summarizing the inversion rules and over 300 pages of treasury regulations that came out this week. But if you just take a step back, what an inversion is, is a U.S. company acquiring a smaller foreign company, but doing it upside down so that, as a formal matter, the foreign company is the acquirer and not the target. There is no economic reason for that. It's an entirely tax driven structure to a business combination and the reason to do it is to remain a U.S. company in substance, as the Allergan case demonstrates, while, at the same time, taking advantage of foreign parent ownership to reduce U.S. tax liability.

REHMBut...

KLEINBARDSo it's a serious problem.

REHM...they are. They are legal. There is nothing in current tax law that says they are not legal.

KLEINBARDRight. It is -- this is not a question of illegality, but it is a question of policy and it's a question of a level playing field between U.S. firms that don't invert, on the one hand, and U.S. firms that do. It's not -- it's perverse policy to imagine a world in which a foreign-controlled U.S. company should elect into a privileged tax rate in the United States while domestic U.S. companies are paying full freight. That's just perverse national policy.

REHMAnd Chris Edwards, you argue inversions are not harmful.

EDWARDSThe problem with the president's and the treasury's new regulations the other day is that they don't solve the fundamental problem that United States is probably the worst place in the world tax-wise to put the headquarters of multi-national corporations. Globalization is a reality. There are tens of thousands of multi-nationals out there. It would be good for us if we encouraged those multi-nationals to put their headquarters here. Multi-national headquarters of lots of high income jobs and the like.

EDWARDSSo it's a tragedy that all these U.S. companies are moving their headquarters on paper abroad. So I would agree with Mr. Kleinbard that, you know, that there's a large effort to avoid taxes by U.S. corporations, but I think the way to solve that is we have to lower our corporate tax rate. The current data shows that the global average corporate tax rate is just 24 percent. The U.S. rate, federal and state, is about 40. So that is a huge driver of tax avoidance.

EDWARDSAnd just about every other country has figured this out, that the tax rate's the key and have lowered their rate. So a few years ago, Britain had a problem with a lot of its companies inverting and going to lower tax Ireland. Britain has solved the problem by lowering their corporate tax rate from 28 down to 20 percent and they plan to lower it further to 17 percent. President Obama had the Canadian prime minister at the White House a couple weeks ago. Canada slashed its corporate tax rate to just 15 percent.

EDWARDSAnd they came out with a new budget last week where they had a chart showing that, you know, their rate was much lower than the U.S. rate and they're proud of that. They think it's good for their economy. So I think that, you know, we've got to lower our corporate rate and what President Obama has done is just kind of a Band-Aid that doesn't really do much good.

REHMAt the same time, there has been no action on the part of the Congress, though there have been these reports over and over again of inversions and exactly the kinds of comments you're making. Here's an email from Tony in Grand Rapids, Michigan. He says, "I think corporate tax inversions are unpatriotic at the least and a huge slap in the face to all Americans and to America who helped build these companies by patronizing them.

REHMThey should pay their taxes to support our country and if they're not happy about tax rates, then use the political process to try and change them." That hasn't gone very far, Chris.

EDWARDSWell, I think it's unpatriotic and to go at what you said, Diane, there's been little action by Congress or by this administration to do fundamental corporate tax reform.

REHMWhat could the administration have done in the face of a Congress unwilling to do anything?

EDWARDSI don't think the Congress has been unwilling to do corporate tax reform. Paul Ryan, the chairman, the head of the tax writing committee, wants to do corporate tax reform, too. I think this administration should've worked harder to get together to Mr. Ryan and done corporate tax reform.

REHMChris Edwards, he's director of tax policy studies, editor of DownsizingGovernment.org at the Cato Institute. Short break. We'll be right back.

REHMAnd welcome back. We're talking about inversions. The operation by which a U.S. company merges with a foreign company, in this case we're talking about Pfizer and Allergan, which is located in Ireland. But this is nothing new. It's been going on for a long time in order for the American based company to establish a presence in a foreign country in order to save taxes. And just before the break, Chris Edwards, you were talking about the amount of taxes a U.S. company has to pay.

REHMHere's tweet. "Everyone talks about corporate tax rates in the U.S. being around 30 percent. How many corporations actually pay 30 percent? And 30 percent of what?"

EDWARDSIt's a good question. The U.S. federal legal rate or statutory rate is 35 percent, but most companies would actually pay a lower overall sort of effective rate than that. That is absolutely true, but that's true in other countries as well. Countries that have, say, a 25 percent legal rate, the companies in those countries are going to pay a lower effective rate too.

EDWARDSI mentioned Canada, the new Canadian budget last week has a very interesting chart. They show the effective rates or the actual amounts that companies pay on new investments for a bunch of countries including United States. They've got the effective rate for United States on new investments at 34 percent. Other countries are much lower. So Canada's effective rate is just 17 percent. So the problem is we have a higher legal or statutory rate and we have a high effective rate on new investment.

REHMEdward Kleinbard, I know you wanted to jump in.

KLEINBARDYou know, this question of effective rates and statutory rates is very complicated. But it's very important to compare apples to apples, so, for example, Canada has a 15 percent rate, well, no, actually it doesn't because Canada essentially close to doubles that statutory rate when you include its provincial taxes, which are much, much larger than U.S. state taxes.

KLEINBARDWhen it comes to effective rates, we don't have to look to a Canadian chart. The president's -- the treasury department put out on Monday along with these 300 pages of regulations elaborate charts on exactly this question. And when you take into account the law as it existed in 2015, the marginal rate, the rate on the next dollar of investment in the United States was about 18 percent. Canada's was lower. But the U.K.'s was higher. Germany's was higher. France's was higher. So we have, in fact, a low marginal rate and our effective rates, our average real life rates are very low.

KLEINBARDPfizer is the perfect example of that. Pfizer's actual effective global tax rate on all of its income was on the order of seven percent over the last five years.

REHMSeven?

KLEINBARDIt's a world-wide income.

REHMSeven percent?

KLEINBARDYes.

REHMOkay.

EDWARDSCan I say one quick thing on that...

REHMOh, sure.

EDWARDS...Diane? Those are interesting numbers, but I think Ed would probably agree that, you know, the tax avoidance or cheating that goes on that a lot of people complain about, it's mainly driven by the legal or statutory rate. It's the fact that the U.S. has the high 35 percent legal or statutory rate that drives this sort of tax avoidance, like the earnings stripping that President Obama addressed the other day. So while it may be true that a lot of U.S. companies have a lower actual or effective rate, it's the legal or statutory rate that is driving this behavior that drives a lot of people crazy.

REHMRichard Rubin.

RUBINYeah, and so if you look at Pfizer, they've actually reported a pre-tax loss in the United States for the past seven or eight years. And so it's not clear at all exactly how much they've been paying.

REHMHow much they actually pay.

RUBINYeah.

REHMTell me what happened as a result of the new treasury rules to Pfizer and to Allergan.

RUBINYeah, so Pfizer and Allergan have this deal that had -- this merger that had been set up. They signed it last year, and they were set to close it in 2016. And they looked at these rules, looked at how difficult it really is to challenge these tax regulations in court, and within about 24 hours walked away from the deal entirely.

REHMWhat would it have meant in the way of either profits or savings for either company?

RUBINWell, Pfizer's got about $160 billion of stockpiled profits that it's got outside of the U.S. If it brought that money back to the U.S., it would have to pay the U.S. tax on that. If they had gone through this inversion, they'd be able to access that money to take loans against it, to use it in their operations all over the world, and then they'd also, in future profits, not have to worry about that second layer of tax.

RUBINAnd so that was one of the real big benefits for Pfizer is the ability to access those profits that they've essentially had low foreign tax rates on those profits by putting their some of their existing profits in Ireland and Puerto Rico and other places. And they want to sort of finish the job and get the global low tax rate and get that money back to shareholders the best they can.

REHMEd Kleinbard, President Obama has said, and others join him, have said that they see allowing companies to avoid paying their fair share of taxes really hurts the middle class. Explain that argument.

KLEINBARDYeah, the problem is simply this, we like to get very agitated about taxes in the abstract, but the fact is the taxes are just the means by which we finance the government we want. And if one group of taxpayers doesn't pay, other taxpayers have to make up the difference. So the question is how much should corporate America be paying as part of the total financing of U.S. government. When a company like Pfizer, which reports losses in the United States, which has a global tax rate of seven percent, in effect says that's not good enough, we want to invert as well, then what that means is that all of their stockpiled foreign profits would escape U.S. tax.

KLEINBARDYou're talking numbers in the range of $30 billion or more of tax. Well, that's a significant program that could be financed with those kinds of numbers that we're leaving on the table. So I don't view it as fair or unfair in a patriotic sense. I think that that's kind of a dead end argument. I think the question is simply is business paying a appropriate tax rate on business income. In the case of Pfizer, it's easy to see that the answer is no.

REHMIs there any way to speculate on the number of corporate inversions that have taken place, Rich Rubin, and how much that could be costing the federal government?

RUBINSo there have been a few dozen of them, including some large ones in the past few years, Medtronic, a medical device maker that used to be a headquartered out of Minnesota, is one...

REHMRight.

RUBIN...of the larger ones. I'm not aware of a figure that tries to sort of really put together the total potential revenue loss for the U.S. government. It's definitely in the billions and tens of billions. And it's important to note too that inversions are sort of easy in some ways for the public to understand because it's a paper transaction that changes the address of a company. But it's really a part of a much larger process that companies have gone through over the past couple of decades, of reducing their U.S. tax burden and pushing profits out of the U.S. So it's one part of the issue, but it's certainly far from the global issue.

REHMEd Kleinbard, you were a former chief of staff to the U.S. Congress' joint committee on taxation. They did an estimate and found it would only gain about $2 billion a year by stopping inversions. You believe that figure is way too low.

KLEINBARD$2 billion is a year is too low. And, in fact, the JCT has wonderful economists, wonderful lawyers, but a great deal of difficulty predicting the paths of investment banking deals, because it's just not plugged into what Goldman Sachs is thinking this week. But their latest numbers in connection with the president's budget show that from stopping inversions alone about $12 billion in revenue pick-up over the next 10 years.

KLEINBARDAnd from the other half of the activity that the treasury addressed, the so-called earning stripping rules that Richard summarized at the beginning, another 78 billion. So that's a total of 90 billion over 10 years of revenue pick-up that they estimate from those two reforms that the president proposed.

REHMWhat do you think of those figures, Chris?

EDWARDSWell, I'm sure Ed's probably right. He's the head of -- former head of the committee that estimated those sorts of things. But I want to go back to something that Ed was talking about a minute ago, which is the corporations paying a fair share. Corporations are just the tax collectors. The actually burden of corporate taxes lands on individuals, as workers, as shareholders, and as consumers of products. If you raise taxes on Pfizer, Pfizer will have less money to build new factories, to hire more workers in America. They're just -- corporations are just the conduit.

EDWARDSI don't think it's a good policy to raise taxes on companies like Pfizer. I think that hurts workers. So there isn't this -- there shouldn't be this antagonism between corporations and U.S. workers. If corporations do well, they hire more Americans, they invest more, they build more factories here. And that ought to be the goal of policy I think.

REHMEd Kleinbard, do you want to comment?

KLEINBARDYou know, I hope I don't have to forfeit my card as a member of the progressive movement and good standing, but what Chris says, of course, is true, corporations aren't people, ultimately people bear the tax. Which people do, it's a very complicated question. But the fact is that when Pfizer is reporting negative income in the United States, whichever those people are who are benefited from their relationships with Pfizer are getting a windfall relative to all the rest of us in America.

KLEINBARDAnd what I want to see is lower nominal tax rates, and, again, Chris and I happen to agree on that, and so does the president, for that matter. He urged that the nominal tax rate come down. But to have those tax rates apply more consistently across the board. Pfizer has 40 percent of its sales in the United States, yet has negative income in the United States. That's a very odd story to be telling.

REHMRich.

RUBINYeah, two things. One is that economists disagree about exactly how much of the corporate tax burden is borne shareholders and by labor, but generally the assumption is that most of it goes to shareholders, which, you know, is to some extent high income people, but some extent pension funds, IRAs. And then some fraction of it is borne in lower wages by workers. The second thing, as Ed said, the president and Republicans in Congress both want to lower corporate taxes -- the corporate tax rate.

RUBINThey both want to get rid of some breaks. They both want to essentially change the rules of overtaxing overseas income so that you don't have this second layer issue where you've got companies that are incentivized to stockpile profits abroad and hope they can get it back to the U.S. at a low tax rate. And so there's actually a remarkable degree of agreement and has been for four or five years now, but then once you get into the details and start dealing with individual taxes, the whole thing breaks down.

REHMRichard Rubin, he's U.S. tax policy reporter for The Wall Street Journal. And you're listening to "The Diane Rehm Show." Rich, I wanted to come back to you. We've touched on earnings stripping, but explain exactly what happens there.

RUBINSo earnings stripping is a sort of general term for the kinds of maneuvers that are available to foreign companies that aren't available to U.S. companies. So imagine two equivalent companies both with operations in the U.S. and in the U.K., but one of them has its address in the U.S., one has its address in the U.K. In both cases, if you had the U.K. portion of the company loan money to the U.S. portion of the company, and then the U.S. portion would start making interest payments, right?

RUBINSo for the company that has its address in the U.K., those interest payments are deductible in the U.S., income in the U.K., you take advantage of that differential and tax rates that both Chris and Ed have talked about, and they win. That's earnings stripping. They're stripping the earnings out of the U.S. is the way to think about it. They're taking their U.S. profits and making their taxable income smaller, which is what we as taxpayers all want to do.

RUBINBut if you're the U.S. company, and you are essentially sending interest payments to your U.K. subsidiary, there's a longstanding tax rule that basically says, well, you can't do that. You can't hand money to yourself and have it count as a lower tax rate in a foreign jurisdiction, and so you're not able to strip your earnings out of the U.S. in that way.

REHMBut how is it that Pfizer says it has negative earnings. I don't get that.

RUBINSo profits for tax purposes and sales are not the same thing. So what a company like Pfizer can do is -- and we don't have all the details of what they've done, but just in general you can, all right, well, our research costs are in the U.S., so those are deductible. And our headquarters costs are in the U.S., so those are deductible. And, you know, we -- but we've taken some of the intellectual property, the patents for those drugs, and put them in low tax countries, and so the earnings, the income happens over there. And so especially what companies will do is put the intellectual property in Ireland, Singapore, Puerto Rico and then essentially sell to the rest of the world from those hubs.

REHMAnd that's without creating this merger, in other words, Pfizer can do that right now, Ed Kleinbard?

KLEINBARDYeah, well, you know, that's exactly right. This is the phenomenon I'd call stateless income. This is the reason why Pfizer can show a seven and a half percent global tax rate today. It's true of all the tech firms as well. They're able to report single digit tax rates on their international income, and in Pfizer's case, the global income, precisely because they've been able to shift today under current law the nominal ownership of their intellectual property to essentially tax haven locations, and then license that out to the rest of the worldwide group. And by doing that strip income, in that respect, not only from the United States, but from every high tax jurisdiction.

REHMEd Kleinbard, he's professor of law at the University of Southern California School of Law. Short break here. When we come back, we'll open the phones, take your calls. I look forward to hearing from you.

REHMAnd it's time for your emails and phone calls as we talk about the corporate practice of inversion. Here's an email from Tori, which begins with one word repeated three times. Greed. Greed. Greed. The defense of these practices turns my stomach. Are these the same people who scream bloody murder about raising the minimum wage? Do you really wonder about the appeal of Sanders and Trump? So here we are in the middle of a Presidential campaign. Ed Kleinbard, do you see these issues weighing in with the American voter?

KLEINBARDWell, they plainly do, and I think one of the reasons why inversions get so much attention is because it's easy to crystallize a lot of emotion around the idea of Pfizer or whomever as being an unpatriotic company, thinking only about its greed. But candidly, I'm not as troubled by greed as your viewer is. I think that it's okay for companies to be greedy. There's an ethical failing here, but the ethical failing really is Congress. Congress is letting us all down on the job of putting in the work to maintain the tax system to produce the results that are appropriate.

KLEINBARDSo, I don't view Pfizer or anyone else as having an ethical breach. I think that Congress is really the unethical actor here.

REHMAnd that's where you and Ed agree, Chris?

EDWARDSNo, sure. That's absolutely right. And I think one thing to keep in context is this current issue we're discussing about inversions and earnings strippings. That's only a part of the broader issue of corporate tax investment and corporate tax avoidance. There are many other ways that multi-national companies can avoid US tax and do try to avoid US tax because the rate is so high. So, Richard, I think, was touching on high tech companies, companies like Apple and the like, they can move their intellectual property to low tax countries like Ireland. This is a constant pressure on our tax code and it's enormously complicated.

EDWARDSAs I said, there are tens of thousands of multi-nationals. They buy and sell and trade to US based companies. It's extremely difficult to police all of this, and so that is why a lot of countries have figured we're not going to be able to police all this with any kind of degree of accuracy. The best defense is a good offense and so they've lowered their corporate tax rates so that profits, paper profits pile into the country rather than being pushed off shore. We are pushing away paper profits and real investment from the United States because our rate is so high. It comes down to that, and ultimately, Congress has got to solve that problem.

REHMAll right, to Richmond, Virginia. John, you're on the air.

JOHNGood morning, Diane.

REHMHi.

JOHNGreat program.

REHMThank you.

JOHNAs always. Diane, very simply, I can't argue the inversions in the technical side, but the gentleman from Cato and others who talk about our corporate tax rates being so high is what induces corporations to be wanting to relocate and go through these inversion processes, he is not using or bringing up the big elephant in the room. We, as a nation, have taken on a responsibility, whether it is right or wrong, for defense. And the countries that he uses to compare to, Canada, I heard, and others.

JOHNThey have nowhere near a proportion of their budget anywhere near -- it's an infinitesimally small verses what we have to do within the United States. And I'd like to see this gentleman start talking about, you know, that, and including it in the equation.

REHMAll right, and here's a follow up email from Kurt in Saline, Michigan who says, it's unfortunate these companies don't acknowledge that while trying to avoid taxes in the US by inverting, they accept the full benefit from the US military presence and safety that we provide around the free world, paid for by US tax payers. Chris?

EDWARDSThose questions go to the issue of how much revenue overall should the federal government raise? And that's, in a way, it's a whole different discussion. But, I would say this, that there are smart ways and dumb ways for the federal government to try to raise revenue. And a dumb way is to impose a high US corporate tax rate and think that companies are just gonna simply comply and give the federal government a lot of money. Here's an interesting statistic. One of the callers brought up Canada.

EDWARDSAnd Canada has a federal corporate tax rate of 15 percent. They raise two percent of GDP, of their GDP from that 15 percent rate. We have a 35 percent federal corporate tax rate. We raise about the same, two percent of GDP. What is going on is that profits are flowing into Canada because they're attracted by the low rate and the United States is pushing profits off shore because we've got the high rate.

REHMEd Kleinbard.

KLEINBARDAgain, Canada is a more nuanced story. Unlike the United States, Canada raises almost as much from its provincial taxes as it does from the federal. So that the blended rate in Canada is in the range of 25 to 30 percent. The United States collects relatively low tax from its corporate tax system, but there are two reasons for that. The first is that the United States, unlike virtually every other country in the world, has a gigantic, unincorporated business sector. So that private businesses in the United States are generally organized outside of the corporate tax system.

KLEINBARDThat's where a lot of the missing revenue is. And the second is the stateless income phenomenon that I talked about earlier. US firms load up on interest expense in the United States. They park all their profits offshore and the result is very low tax rates on their US income and very low tax on their foreign income by virtue of licensing their intangibles out of tax havens. And the result is just low tax everywhere for the successful gamers of the international tax system.

REHMRichard.

RUBINYeah, so, the -- all leads to the obvious question. How do the other countries do it? So, right? They, yes, they have -- don't spend as much on defense as we do. But they also spend a lot more on social programs. And the answer is, they all have the value added taxes. And so, around the world, if you want to be like other countries, if you want to -- how does Britain manage to do this? How do they lower their corporate tax rate and still fund their government? Well, the answer is they have a value added tax that they've increased over years.

RUBINAnd so, consumers are bearing a much greater share of the tax burden in other countries around the world than in the US.

REHMLet me ask you, as we go forward, the leading Presidential candidates are all talking about this. What are they saying, Rich?

RUBINSo, Bernie Sanders and Hillary Clinton are along the same lines of where the administration is. They want to, you know, immediate curbs on inversions. They have not embraced the corporate tax rate reduction that the Obama administration has, so that's one key difference. Hillary Clinton's also proposed an exit tax, so that companies would have to pay an additional tax if they go through an inversion. Republicans have called for lowering the corporate tax rate. Donald Trump goes to 15, Ted Cruz goes even lower than that.

RUBINHe's got a somewhat more complicated plan. It's not worth getting into in full detail. But they go along the lines of what mostly what Chris has been talking about. Is like, look, if you lower that rate differential, then you'll really deal with a lot of this problem and reduce a lot of the incentive to invert.

REHMBut subject to the Congress not doing a thing, will corporations find a way around these new treasury rules, Chris?

EDWARDSPartly. It will block some transactions, but corporations will find other ways to avoid US tax man. What I find interesting about the politics of the United States is that there's such an anti-corporate sentiment now, I see what has happened in other countries, both left of center and right of center governments, in Europe and Canada, Australia, elsewhere. Have slashed their corporate tax rate. I think the debate in a lot of other countries is other countries see their multi-national companies as sort of their national champions.

EDWARDSAnd they want to help them. They want to do tax reforms that help their corporations. In this country, it seems to be a different debate where people are just anti-corporate. And I think people have to remember that these great American corporations like Pfizer and Apple and IBM and all the rest, they hire millions of Americans. So we want them to do well in the global economy. So, that's what we can't forget.

REHMAnd we also want them to pay their fair share of taxes.

EDWARDSWell, Diane, then we get into, you know, the issue, you know, ultimately, who bears the burden of the corporate tax and I do think, as the economy gets more globalized, there's evidence that more of the corporate burden lands on workers. In other words, if you tax Pfizer more, they've got less money to increase wages for their workers and build new factories, which reduces job opportunities. So, I think that's the downside.

REHMAnd, and on that point, let's take a call from Lee in Little Rock, Arkansas. You're on the air.

LEEYes, well, what I don't understand is that when a company -- you said that we are anti-corporation. But I think the corporation is anti-people. I think what's happening with the corporation -- they think that there should only be two classes of people, the very, very poor and the very, very rich. I mean, if they want taxes, if they want to not pay so many taxes, then pay the people. And then the people will pay the taxes.

REHMChris.

EDWARDSI bet if you surveyed the tens of millions of Americans who work for companies like Apple and Pfizer, they'd be extremely proud to work for the companies they work, and they would see all the good that their corporations do. I mean, Pfizer and other Pharma companies, of course, create life-saving drugs, so I, you know, I just disagree with that sentiment.

REHMOkay, I want to ask you Chris and you Ed about something else that's been in the news this week. The so-called Panama Papers. Tell us, briefly, what they're all about, Ed.

KLEINBARDWell, the Panama Papers are a wiki-leaks type phenomenon, 11 and a half million documents, comprising 40 years-worth of records of one law firm in Panama that helps people all over the world set up shell companies in tax havens, both to reduce taxes and to achieve anonymity as to the ownership of those assets. People do that for lots of reasons. You know, people hide assets from soon-to-be ex-spouses. But overwhelmingly, the most important reason is tax avoidance. US individuals, and this is now -- we're shifting to individuals rather than companies.

REHMRight.

KLEINBARDUS individuals have not figured very large in this scandal. In this round, because US individuals don't like to use Panama as a base, but important leaders all over the world have figured, President Putin's close friends have two billion dollars in these offshore vehicles that have been disclosed. The President of China's family has assets held through these shell companies. The Prime Minister of Iceland has just been forced to resign over the fact that his family held assets in this way.

REHMBut he says he's not going to resign.

KLEINBARDOh, I'm sorry. I'm a few hours behind.

REHMHe apparently is saying he's stepping aside until this is all straightened out, but he is not relinquishing his position. And you're listening to The Diane Rehm Show. So, Rich, this gives us a better idea of not corporations, but individuals trying to do the same thing that corporations are doing.

RUBINYeah, I mean, the incentives to find ways to avoid taxes have always existed. This is the constant cat and mouse game between individuals and corporations with money and tax collectors who are trying to get a piece of that money. And so, we've seen this play out in the individual side, on the corporate side. There's a constant back and forth of countries writing rules to try and prevent people and companies from doing things. And then companies and people finding evermore clever, creative, sometimes illegal, sometimes not, ways of getting around that.

REHMSo, to what extent do you see the next Congress, no matter who is in there, really addressing these tax issues?

RUBINWell, I've been covering taxes for nine years now, and I -- I like to joke that I've now been covering the tax reform act of next year for nine years now. So, it, it always seems just around the corner. The incentives to do it are there, but when you get into the details of it, unless you're going to give a giant tax cut and that has losers too, if you're going to do anything like a revenue neutral tax reform or anything where you're trying to pay for the tax rate cuts that you're doing, then you're going to have a number of winners and losers.

RUBINAnd the way the politics of tax reform work are that the losers know they're losers and they're loud about it, and the winners don't quite believe they're going to win. And so, the, for any member of Congress who's trying to sell limits on the mortgage interest deduction, limits on the charitable deduction, changes that will hurt the oil industry if they're in Texas, or the renewable industry -- energy industry if they're in Nevada, those are a really hard sell. Because they're really particular interests scattered throughout the tax code.

RUBINRemember, the reason we have the tax code we have today is because Congress wrote it that way. So, it wasn't this Congress, necessarily, but there are political incentives built in to the code the way they are now, and unraveling that is not necessarily easy at all.

REHMDo you have any expectation that the next Congress will take this on, Chris?

EDWARDSI think it depends who the President is. I think if it's -- the next President is Hillary Clinton, I think there's -- and the Congress remains Republican, it will just be deadlock for years to come. Although, you know, there is -- there's probably more of a chance she would be interested in corporate tax reform than President Obama, I think. Both, you know, if it's a President Cruz or Trump, you know, Trump has got just about everything wrong on his policy, in my point of view. But he is for a large corporate tax cut, which I support, so we will see. The problem has to be solved.

REHMIn about 10 seconds, Ed, what do you expect?

KLEINBARDI actually do expect business tax reform in the next administration regardless of who the President is. And these treasury regulations may encourage companies to come to the table, because self-help has been taken away from them.

REHMAll right. We'll leave it at that. Ed Kleinbard of the University of Southern California School of Law. Richard Rubin, US Tax Policy Reporter for the Wall Street Journal. And Chris Edwards, Director of Tax Policy Studies, Editor of downsizinggovernment.org at the Cato Institute. And thank you all so much for being here.

EDWARDSThank you, Diane.

RUBINThanks.

REHMThanks for listening, all. I'm Diane Rehm.